Scottish Court Rules on the Impact of the Trust Convention on the Distinction between Contractual and Proprietary Rights

17 апреля 2012

Scottish Court Rules on the Impact of the Trust Convention on the Distinction between Contractual and Proprietary Rights

On March 23rd, 2012, Lord Hodge issued an interesting opinion in
Clark and Whitehouse Joint Administrators of the Rangers Football Club on the
impact of the Hague Trust Convention and the distinction between contractual
and proprietary rights for choice of law purposes.

Clark and Whitehouse were appointed administrators of the Rangers Football
Club after the club met serious financial difficulties. The administrators
sought directions from the Scottish court as to whether they could terminate
contracts concluded with two English Ticketus companies by which Rangers sold
to Ticketus large numbers of season tickets for seats in the Ibrox stadium in
each of the seasons from 2011-2012 to 2014-2015.

The administrators wondered whether they could get back the rights they had
granted to Ticketus so that they could design an interesting offer for any
potential buyer of the majority of shares in Rangers. The contracts concluded
with Ticketus were governed by English law. According to the advice of an
English QC, the rights transferred to Ticketus were irrevocable.

they conferred an intermediate right which was not a property right in
the conventional sense but was more than a mere personal right, and they could
be enforced by the grant of equitable relief which could include an order for
specific performance of the rights attaching to the tickets.

Nobody disputed, however, that Scottish law would govern any proprietary
rights over property situated in Scotland.

[19] English law governs the meaning of the two Ticketus agreements and
it is to that legal system that the court must look to interpret those
agreements. But it is Scots law that determines the nature of the proprietary
rights (if any) which the agreements confer in the tickets or the stadium
seats.

Ticketus submitted that the issue was not so much the law governing the
property, but rather the law governing the trust which had been created by the
transaction. It was further argued that

under Article 6 of the Hague Convention on Trusts, (…) a trust was
governed by the law chosen by the settlor. Thus, (…) under Article 8 the
validity of the trust, its construction and its effects were governed by
English law. Article 11 provided that a trust created by the law chosen by the
settlor be recognised as a trust and that meant in this case that the trust
assets did not form part of Rangers’ estate on its insolvency.

Lord Hodge rejected the argument:

[23] (…) I note (…) that two other texts (…) assert that the lex situs
applies to determine whether any property right has passed from a settlor. See
Underhill and Hayton, “Law of Trusts and Trustees” (17thed.) section 102.122,
and Harris, “The Hague Trusts Convention” at p.19. But there is also support
for the latter view in the Explanatory Report of Professor von Overbeck
(www.hcch.net), which discusses Article 4 in
paras 53-60. Professor von Overbeck, using the analogy of a launcher and a
rocket, distinguishes between the act with legal effects which creates the
trust (i.e. the launcher), which does not fall within the Convention, and the
trust itself (i.e. the rocket) which does. He states (in para 55):

“Article 4 is intended to exclude from the Convention’s scope of
application both the substantive validity and formal validity of transfers
which are preliminary to the creation of the trust.”

He records (in para 57) concerns whether the words “assets are
transferred to the trustee” covered the case of a declaration of trust by a
truster-trustee and the unanimous view of the Special Commission that such acts
were envisaged by Article 4. In the event, no change was made to Article 4 as
it appears that it was thought that Article 4 when read with Article 2 covered
the creation of a trust in that way. See also paragraph 43 of the von Overbeck
report.

[24] I am therefore persuaded that the Recognition of Trusts Act 1987
does not have the effect of making the law chosen by the settlor the governing
law of the steps needed to create the trust. Were it otherwise, the results
would be startling as a settlor would be able to alienate property which he
could not dispose of under the lex situs. It would create significant problems
for the operation of insolvency law in the jurisdiction in which the asset was
located. Additionally by virtue of section 1(2) of the 1987 Act it might be
argued that a constructive trust arising from a judicial decision in one legal
system would prevail over the lex situs if a foreign settlor could be
identified.